8 DAYS FOR 6 YEAR-END TRANSACTIONS

Dec 23, 2019

By Andy Ives, CFP®, AIF®
IRA Analyst

As of the writing of this Slott Report submission, it is Monday, December 23, 2019. T-minus 8 days before the end of the year, which means IRA owners have a tight window to complete any year-end transactions. Once the calendar turns, if not finalized in time, some items will be forever lost. Here are six transactions that absolutely must be completed within the next 8 days to avoid penalty and/or a lost opportunity:

Over 70 ½ RMDs. While the first RMD for the year a person turns 70 ½ can be delayed until April 1 of the next year, all future RMDs must be taken before the end of the calendar year. There is no wiggle room. There is no “still working exception” on IRAs. Failure to take an RMD by the end-of-year deadline will result in a 50% penalty of the amount not withdrawn. Yes, there are ways to go about making your case to the IRS as to why you missed the RMD and get the penalty waived, but that extra work can be avoided by simply taking the RMD on time.

QCDs. Qualified charitable distributions must also be completed and recognized by the custodian by December 31. There is no going back. There is no such thing as a “prior year QCD.” I say “recognized by the custodian” because some people have IRA checkbook accounts. Writing a check to an eligible charitable organization before the end of the year will not meet QCD criteria. It must be cashed and debited from the IRA account before the end of the year.

Account splitting for those who passed away in 2018. IRS regulations require that IRAs inherited by more than one beneficiary must be timely split for the individual beneficiaries to use their own life expectancy to stretch RMD payouts. “Timely split” means by December 31st of the year following the year of the IRA owner’s death. Even if the original IRA owner died on the first day of 2018, the beneficiaries still have until the end of 2019 to split the account. Guess what deadline is 8 days away? Missing the deadline will force the beneficiaries to use the age of the oldest beneficiary for RMD stretch calculations.

Inherited IRA RMDs. You split the inherited account on time? Nice work, but there is another task at hand. No matter your age, if you have an inherited RMD from a person who passed away in 2018 (or earlier), current rules dictate the beneficiary’s RMD from the inherited IRA must be withdrawn by December 31, 2019. If you miss the 2019 cut-off for those who passed away in 2018 or earlier, there is a 50% penalty, just like with the over-70 ½ RMD.

Roth Conversions. Roth contributions can be made up to the tax filing deadline, NOT including extensions. However, to have a 2019 Roth IRA conversion, the funds must be distributed from the traditional IRA by year end. But don’t be too hasty. Consider your strategy carefully. Roth conversions cannot be recharacterized. Once you convert, there is no going back, and all the tax and income ramifications of that conversion are officially yours to keep. (Roth contributions can be recharacterized. Be sure not to confuse the two.)

NUA Lump Sum Distributions. While this is more of a workplace retirement plan deadline, it is still hard and fast. To qualify for the net unrealized appreciation (NUA) tax benefit, a lump-sum distribution means that ALL the company plan funds must be distributed in one tax year. If there is any balance in the plan at the end of the year, the NUA tax break is blown. If your goal was to complete an NUA transaction in 2019, be sure the NUA stock has been delivered in-kind and all other assets have been either paid out or rolled over to an IRA.